Adjustment of Capital

3/4 Marks Questions

1. Nandan, John and Rosa are partners sharing profits in the ratio of 4:3:2. On

1st April, 2012, John gave a notice to retire from the firm. Nandan and Rosa decided to share future profits in the ratio of 1:1. The capital accounts of Nandan and Rosa after all adjustments showed a balance of Rs. 43,000 and Rs. 80,500 respectively. The total amount to be paid to John was Rs. 95,500. This amount was to be paid by Nandan and Rosa in such a way that their capitals become proportionate to their new profit sharing ratio. Pass necessary journal entries in the books of the firm for the above transactions. Show your working clearly. (All India 2013)

JOURNAL

Ans.

Date Particulars LF Amt (Dr) Amt (Cr)

2012 Apr 1 Cash A/c Dr 95,500

To Nandan's Capital A/c 66,500

To Rosa's Capital A/c 29,000

(Being cash to be paid to John brought in by Nandan and Rosa) Apr 1 John's Capital A/c Dr 95,500

To Cash A/c 95,500

(Being cash paid to John for his capital)

Working Note

Adjusted capitals of Nandan and Rosa (43,000 + 80,500) 1,23,500

(+) Amount to be paid to John 95,500

Total capital of new firm 2,19,000

Amount to be Brought in or Withdrawn

Particulars Nandan (₹) Rosa (₹)

New Firm's Capital (2,19,000) in New Ratio i.e. 1.1 1,09,500 1,09,500

(-) Existing Capitals 43,000 80,500

Cash to be Brought in 66,500 29,000

1. X, Y and Z are partners in a firm sharing profits in the ratio of 3:2:1. On 1st

April, 2009, X retires from the firm, Y and Z agrees that the capital of the new firm shall be fixed Rs. 2,10,000 in the profit sharing ratio. The capital accounts of Y and Z after all adjustment on the date of retirement showed balances of Rs. 1,45,000 and Rs. 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners. (Delhi 2010)

co are pararers.

Calculation of Cash to be Brought In or Paid Out

Ans.

Particulars Υ Z

Capital After All Adjustments 1,45,000 63,000

(-) New Capital Share (2,10,000 in 2 : 1) <math>\{1,40,000\}</math> (70,000)

Amount of Cash Adjustment 5,000 (7,000)

It means Y will take ₹ 5,000 and Z will bring ₹ 7,000 to make their capital in new ratio.

1. X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st

April, 2009, Y retires form the firm. X and Z agree that the capital of the new firm shall be fixed at Rs.2,10,000 in the profit sharing ratio. The capital accounts of X and Z after all adjustments on the date of retirement showed balances of Rs. 1,45,000 and Rs. 63,000 respectively. State the amount of actual cash to be brought in or to be paid of partners. (All India 2010)

Ans.

Calculation of Cash to be Brought In or Paid Out

Particulars X Z

Capital After All Adjustments 1,45,000 63,000

(-) New Capital Share (2,10,000 in 3 : 1) (1,57,500) (52,500)

Amount of Cash Adjustment <math>\{12,500\}</math> 10,500

Therefore, X will bring ₹ 12,500 and Z will take away ₹ 10,500 to make their capital in new ratio.

8 Marks Questions

1. L, M and N were partners in a firm sharing profits in the ratio of 2:1:1. On 1st April, 2013 their balance sheet was as follows.

Balance Sheet

as at 1st April, 2013

Liabilities Assets Amt (₹) Amt (₹)

Capital A/cs Land 8,00,000

6,00,000 Building 6,00,000

М 4,80,000 Furniture 2,40,000

N 4,80,000 Debtors 15,60,000 4,00,000

General Reserve 4,40,000 (-) Provision for Doubtful Debts (20,000) 3,80,000

Workmen's Compensation Fund Stock 3,60,000 4,40,000

Creditors Cash 2,40,000 1,40,000

26,00,000